Sunday 17 December 2017

State warned of €500m risk on Anglo loan sale

The 'Project Taylor' shambles will cost taxpayer

Tom Lyons

IBRC told the State just before Christmas that a mass sell-off of loan notes relating to its trading clients could trigger an extra capital loss of up to €500m.

At a strategy meeting in December 2012, attended by the Department of Finance and the Central Bank, taxpayer-owned IBRC said that selling the loan notes associated with the bank's €1.8bn cash-flow book could only be done if the State was prepared to accept additional losses ranging from 20 per cent to 45 per cent on top of existing provisions.

These losses would be incurred because of the discount buyers of loan notes, as opposed to businesses, would expect because of the added complexities and risks of factors such as litigation, title challenges and time.

IBRC's cash-flow business, called Project Taylor, includes 18 different companies with gross borrowings of €1.8bn.

At its meeting with the department, IBRC said it believed it could recover €1.2bn or more of these loans if allowed to gradually work them out over a number of years.

The department, which was represented by John Moran, its secretary general, was told that the bank could lose up to €500m more in a worse-case scenario if, instead of a work out, the loans notes associated with each business were simply sold off.

Combined with the €600m loss the bank has already reserved for, this could push total losses on this book alone to over €1bn. The loan note sale scenario is what the State is now pursuing by placing IBRC into liquidation.

In the mid-point case, which was calculated by IBRC's advisers UBS and Deloitte, the bank would lose about €200m extra in a loan note sale. The fact the loan notes are up for sale in a liquidation make a worst-case scenario capital loss more likely.

The all-day meeting between the Department of Finance and IBRC was also attended by officials from the Central Bank and a range of advisers to all sides. Moving IBRC's entire cash-flow business, which employs thousands of people, to either AIB or Bank of Ireland was also discussed. This would have protected the companies from a fire sale by moving them into the safe haven of an Irish bank while shrinking IBRC's balance sheet even further.

Among the other issues considered at this meeting was the sale of about €4bn of non-performing property loans which includes various syndicates, including high-profile figures in the entertainment, law and accountancy fields.

The discussion here focused on how to sell off this loan book gradually in a way that would minimise additional capital losses. IBRC said it believed the best way to ensure the taxpayer did not lose hundreds of millions selling off these loans was to bring them on to the market gradually.

Demand for UK property contained within this book was strong so these would be sold before assets in Ireland. The latter would be sold off over a longer period as the market recovered in tandem with Ireland's economy. It would also avoid these assets being put on to the market at a time when UK banks are selling very large portfolios of property loans here at discounts of up to 90 per cent.

Irish Independent

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